Democrat Economic Illiteracy Has Consequences

by David Catron –
The Secretary of Labor, Hilda Solis, visited Capitol Hill last week and claimed that the unemployment rate will increase if Congress fails to extend the eligibility period for federal unemployment benefits. My first reaction to this Orwellian assertion was a quiet chuckle. Then it dawned on me that most Democrats will believe this nonsense. These are, after all, people who believed that health care would be made cheaper by a law that increases demand for medical services while reducing the supply of health care providers. Most would agree with the claim, made by journalist-cum-cheerleader Jonathan Alter, that Obama’s economic stimulus package “prevented another Great Depression.” I realized, in other words, that ignorance about economics is so pervasive among Democrats that it is less funny than dangerous.

That Democrats are generally illiterate about basic economics is not a matter of mere conjecture. In 2010, Daniel B. Klein and Zeljka Buturovic analyzed answers provided by a random sample of 4,835 Americans to a list of eight questions about economics. The results, which noted the party affiliation of the respondents, were not flattering to our friends on the left. “Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.” And these were not arcane questions. They involved elementary concepts, like the effect of price controls, covered in any Econ 101 course taught at the lowliest community college and even some of the better high schools. Yet the average Democrat respondent got nearly 60 percent of the answers wrong.

It is precisely this kind of ignorance that led so many Democrats to believe Obamacare would somehow render health care less expensive. One of the first items covered in any introductory economics course is that the price of any good or service will rise if the quantity demanded increases without an accompanying increase in the available supply of that commodity. Nonetheless, it held no message for the average Democrat that the supply side of the equation was ignored by “reform,” though it increased the number of patients in the health system as well as the range of services to which they are entitled. The issue of supply and demand was utterly lost on Obamacare’s Democrat supporters. Thus, at the time of its passage, fully 78 percent of them favored the law. Even now, 52 percent still support it.

Democrat cluelessness notwithstanding, the laws of supply and demand continue to operate. In fact, even the Obama administration has produced a report showing that “reform” will increase health care costs faster than would have been the case in its absence. The Centers for Medicare & Medicaid Services (CMS) recently forecast that “Total spending is projected to grow annually by 5.8 percent under Mr. Obama’s Affordable Care Act…. Without the ACA, spending would grow at a slightly slower rate of 5.7 percent annually.” Survey after survey has shown that one of the primary benefits Americans wanted from health reform was lower costs. Due to Democrat illiteracy in economics, however, Congress has produced a “reform” law that actually makes medical care more expensive.

Even if Obamacare didn’t ignore the laws of supply and demand, a rudimentary understanding of economics should have alerted any educated observer that it was going to be disastrous for the country because it creates perverse incentives that discourage job growth. The law arbitrarily increases the cost of hiring and keeping employees. George Will recently provided an example of how this works, citing a California-based business called CKE Restaurants. Obamacare will add about $18 million to its costs: “Obamacare must mean fewer restaurants. And therefore fewer jobs. Each restaurant creates, on average, 25 jobs — and as much as 3.5 times that number of jobs in the community (CKE spends about $1 billion a year on food and paper products, $175 million on advertising, $33 million on maintenance, etc.).”

In other words, the job losses at CKE are accompanied by collateral losses in the communities they serve. This phenomenon is being replicated all across the country. And yet most Democrats seem to be as blissfully unaware of this tragedy as they are of the impotence of the American Reinvestment and Recovery Act of 2009 (ARRA). Like Obamacare, this legislation is actually producing the opposite of its intended effect. The “stimulus” package is rendering the economy more flaccid than it would be if the law had never been passed. The Congressional Budget Office (CBO) has now admitted that the additional debt added by ARRA “will reduce output slightly in the long run.” Yet, last week, we witnessed the grotesque spectacle of the President dancing in the end zone because unemployment has at long last dropped below 9 percent.

According to Secretary Solis, this long-overdue decrease in the unemployment number means that “The policies this administration has pursued are adding jobs back into the economy.” Not everyone concurs. NPR reports: “[E]conomists say one reason [the rate] fell isn’t good news — the size of the labor force shrank by 315,000 as more people stopped looking for work because they’re discouraged about the chances of finding a job.” And if you doubt the veracity of those notorious wingnuts at NPR, Gallup also suggests that the “improvement” was illusory : “Job market conditions in the United States were flat in November, as Gallup’s Job Creation Index remained at +14, similar to the range seen since May. This is another indication that Friday’s sharp drop to 8.6% in the government’s U.S. unemployment rate may be overstated.”

Nonetheless, the President, congressional Democrats and most of the “news” media celebrated the modest drop in the official jobless percentage with a level of glee reminiscent of V-E Day. The New York Times, for example, breathlessly announced, “Somehow the American economy appears to be getting better, even as the rest of the world is looking worse.” Predictably, the Times went on to promote the White House party line on the extension of unemployment payments: “Unemployment benefits are believed to have one of the most stimulative effects on the economy, because recipients are likely to spend all of the money they receive quickly and pump more spending through the economy.” The only people who “believe” this are, of course, Democrat supporters of the President and his accomplices in Congress.

In reality, consumer spending doesn’t stimulate the economy. This is a Keynesian canard that was long ago debunked in theory and by actual experience. It is production that stimulates the U.S. or any other economy. This is the inconvenient fact that doomed ARRA and it is what makes the Labor Secretary’s assertion so laughable. Extending the eligibility period for federal unemployment benefits will do nothing for what Democrats and the Media hilariously refer to as the economy. But it will have an effect. Like Obamacare and the “stimulus” package, it will produce the opposite of its intended effect. Another lesson one learns in Econ 101 is that, when you subsidize something, you get more of it. So, if unemployment benefits are extended, it will produce more rather than less unemployment.

And yet our Labor Secretary is by no means the first of Obama’s minions to tell us that unemployment payments somehow create jobs. Last summer White House Press Secretary Jay Carney claimed it would create a million jobs. Solis, Carney, and the Democrats on Capitol Hill who are now singing the same refrain are — one prays — not dumb enough to believe this stuff. But their supporters do, and that’s what makes them dangerous. If their ignorance about economics causes them to give President Obama another four years in the White House, the irresponsible policies of his administration may well convert a severe recession into a worldwide depression that will dwarf the disaster of the 1930s and perhaps even reproduce the horrific consequences that followed thereon.